Is born-again bank buster for real?

Who is Sandy Weill and why should we care that he now says he thinks big banks should be broken up?

Weill built Citibank into the financial colossus whose spectacular collapse in 2008 helped tank our economy. He said he had a vision of creating giant financial supermarkets that conjured up convenience, friendly service, well-lit aisles and lots of choices. But what he was actually building were massive financial tankers fueled on fraud and risky, toxic assets no one understood, kept afloat with dirty back-room deals, hijacked regulators, lobbying and campaign contributions.

To make that vision a reality, Weill also did more than anyone else to drive the final spike through the heart of the Depression-era Glass-Steagall law, which for seventy years had kept risky investment banking separate from federally-guaranteed traditional banking, reducing the risk of bank failures. President Clinton signed the bill repealing Glass-Steagall in 1999.

For his efforts, Weill, 79, made gazillions before he retired in 2006, ahead of the financial collapse.

He also earned a spot among a very select group - Time Magazine’s “25 people to blame for the financial crisis.”  Weill, Time said, helped create the country’s “swollen banks,” which remain one of the economy most serious unsolved problems.

His Citibank is one the worst, and remains on life support only through $45 million [million?] worth of the taxpayers’ generosity.

It didn’t help Weill’s reputation that a few weeks after Citibank accepted its bailout, he used the Citibank jet to fly to his vacation in Cabo, a flight immortalized by the poets on the New York Post copy desk with the headline: “Pigs Fly.”

It was only six months ago that Weill announced he was “downsizing” and simplifying his life, selling his Central Park West apartment in Manhattan for $88 million – more than double what he’d paid for it, as well as attempting to unload his yacht for nearly $60 million. Weill moved to another apartment downstairs.

But downsizing doesn’t mean the same for an uber-banker that it does for the rest of us. He spent $31 million on the largest real estate-deal in Sonoma County’s history, buying a Tuscan-inspired villa that includes 8 acres of vineyards, seven miles of private hiking trails, and an 11,605-square-foot mansion made with 800-year-old Italian roof tiles and 200-year-old wood beams, and a fire truck that comes with seven firefighters. A real estate agent cautioned against viewing Weill’s purchase as a sign that the real estate market in the county north of San Francisco was recovering. As one Coldwell Banker agent said: “[The sale] is not an indicator of an emerging real estate recovery, but rather the ability of the world’s wealthiest individuals to buy what they desire.”

There’s been all kinds of speculation about why has now come out in favor breaking up big banks. But the best way to judge whether he’s serious, or just trying to get a little good PR, is to examine how much cash he’s willing to spend to make it happen.

When bankers, led by Weill, wanted to repeal Glass-Steagall, they fought for 20 years and spent millions in lobbying and campaign contributions before they won. The big banks would certainly put up a similar fight against its reinstatement. No one knows better than Weill that when it comes to changing banking regulations, it’s not what people say that matters; money talks.

How much is Weill willing to spend in support of his newfound conviction? Without massive amounts of money behind them, his words are no more than an old mogul’s sad, empty cry for attention.

 

 

 

Glass-Steagel / Lobbying / Martin Column - 07/30/2012

Bankers' gambles – now with a bailout guaranteed

After the 2008 banks bailout, we were promised that financial reform was going to prevent future bailouts.

Never again.

But as we approach the fourth anniversary of the financial collapse, we’re learning just how hollow those promises were.

The most recent example stems from reports that regulators have secretly designated derivatives clearinghouses too big to fail in a financial emergency.

That means that in a crisis, such clearinghouses, in which risky credit default swaps are traded, would be bailed out at taxpayer expense through secret access to cheap money at the Federal Reserve’s credit window.

That’s where the big banks and the rest of corporate America lined after the 2008 to borrow trillions at low interest – with no strings attached.

The Fed didn’t require the banks to share that low interest with consumers or homeowners. The Fed didn’t require that banks make some attempt to fix the foreclosure mess. The Fed didn’t require corporations hire the unemployed or lower outrageous CEO pay.

The Fed just shoveled out the cheap loans.

Now the Fed is planning to extend that generosity, as a matter of policy, to derivative clearinghouses – which puts taxpayers directly on the hook for Wall Street’s risky gambles, like the ones that recently cost J.P. Morgan Chase $2 billion.

While those trades didn’t threaten to sink the economy, it was the unraveling of those kinds of complex gambles that tanked the economy in 2008.

Nobody knows for sure how large the derivatives market is, but the estimates are truly mind-boggling. One derivatives expert estimates that there were $1.2 quadrillion in derivatives last year – 20 times the size of the world’s economy.

While requiring these derivatives to be traded on clearinghouses is supposed to increase transparency, that assumes regulators are aggressive, diligent and understand the trades.

But signaling that these derivatives should be eligible for a bailout is nothing short of insane, at least from the taxpayers’ perspective. From the bankers’ perspective, it’s a pretty good deal, and a reassuring indication that nothing much has changed since the financial crisis: the regulators are still deep in the bankers’ pocket.

Meanwhile, the real reforms that might have a shot at actually fixing the problems and protecting our economy from the big bankers’ addiction to risk get little or no consideration in what passes for political debate.

The best step we could take is to re-impose the Depression-era   Glass-Steagall Act, which creates walls between safe, vanilla, and consumer banking (which have traditionally been federally guaranteed, and riskier investment banking and derivatives trading But the bankers oppose Glass-Steagall, and for the present, they remain in control of both political parties and the regulators’ financial policies.

Federal Reserve / Glass-Steagel / Martin Column - 06/26/2012

D.C. Disconnect: Revolving Door Edition

When it comes to shaping the Obama administration’s economic policies, only those with tight connections to the nation’s too big to fail banks need apply.

The latest example is the new director of the Office of Management and Budget, Jacob Lew.

He spent most of his career working in government and academia, with one significant exception – a stint as chief operating officer of Citibank’s Alternative Investments Division, which manages about $7 billion in investments in developing countries. Lew was one of those banking executives whose huge post-bailout bonus enraged the public.

In Washington, the issue barely surfaced in Lew’s confirmation hearings. Lew suggested he was too busy running Citibank to notice that the place was drowning in toxic collateralized debt obligations that nobody even understood.

Meanwhile, the guy Lew replaced, Peter Orzag, is headed for a high-paying banking post of his own – at Citibank.

Lew and Orzag were among the large, bipartisan banking-friendly crowd who apparently failed to comprehend or question what was going on around and beneath them in the years immediately preceding the financial crisis.

During that time, one of the places where Orzag and Lew would gather was the Hamilton Project, a high-powered D.C.-based think tank within the Brookings Institute where Democratic Party politicians and bankers could get together to drink in the wisdom of the project’s founder, Robert Rubin, the treasury secretary under President Bill Clinton, a major proponent of banking deregulation, mentor to current top Obama financial advisers Tim Geithner and Larry Summers – and then, the president of Citibank.

The Hamilton Project has been described as a “bastion of the fiscally moderate wing of the Democratic Party.” But it would be more precisely described as the home of the increasingly influential too big to fail bank wing of the Democratic Party.

And who showed up to welcome the launch of the project in 2006?

None other than then-Sen. Barack Obama, who told the assembled crowd, “I would love just to sit here with these folks and listen because you have on this panel and in this room some of the most innovative, thoughtful policymakers, people who have both ideas but also ways of implementing them into action. Our country owes a great debt to a number of people who are in this room because they helped put us on a pathway of prosperity that we are still enjoying, despite the best efforts of some.” (Watch it here.)

This door swinging jovially back and forth between Wall Street and Washington is so common that it registers as a non-event, and makes a mockery of the Kabuki theater of the supposed hostility between Obama and the financial titans.

Ira Stoll at The Future of Capitalism reminds us, in case we forgot, of other members of the Obama economic team who cashed in on Wall Street before it melted down and they joined the administration, like top economic adviser Laurence Summers and $5.2 million a year, one day a week job at the D.E. Shaw hedge fund, and former chief of staff and Chicago mayoral candidate Rahm Emanuel, who got paid $16.2 million for working for a year and a half at the investment banking firm Wasserstein Perella.

As for Orzag, his departure for Citibank created a faint stir in the mainstream media, where Ezra Klein of the Washington Post notes that Orzag doesn’t appear to be in it for the money, since he’s “fairly wealthy” already, and “his lifetime of public service positions does not suggest a man particularly motivated by income.”

But at the Atlantic’s blog, James Fallow viewed Orzag’s move as an example of Washington’s structural corruption. His comments strike me as stating what is blindingly obvious to anyone who lives and works outside the opaque world of Washington. “The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution – and then, less than two years after his administration took office, would take a job that (a) exemplifies the growing disparities the administration says it's trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service – this says something bad about what is taken for granted in American public life.

For Baseline Scenario’s James Kwak, it’s also more than a straightforward conflict of interest. Why does a young, highly educated energetic member of the elite, who presumably doesn’t need a Wall Street paycheck, want to work at Citibank?

“Orszag wanting to work at a megabank — instead of starting a new company, or joining a foundation, or joining an NGO, or becoming an executive at a struggling manufacturing company that makes things, or even being a consultant to countries with sovereign debt problems — is the same as an engineer from a top school going to Goldman instead of a real company. It’s not his fault, but it’s a symptom of something that’s bad for our country.”

Around the Web / Martin Column / President Barack Obama / Too Big To Fail - 12/22/2010

Quotable: Sen. Ted Kaufman

"After a crisis of this magnitude, it amazes me that some of our reform proposals effectively maintain the status quo in so many critical areas, whether it is allowing multi-trillion-dollar financial conglomerates that house traditional banking and speculative activities to continue to exist and pose threats to our financial system, permitting banks to continue to determine their own capital standards, or allowing a significant portion of the derivatives market to remain opaque and lightly regulated."

Sen. Ted Kaufman, D-Delaware, March 11, 2010

Homepage Content / Quotable - 04/01/2010

Back to the Future of Reform with Sen. Chris Dodd

Dodd moves to scale back Consumer Financial Protection Agency plan

In an attempt to lure the Republican votes needed to get a sweeping overhaul through the Senate, the Banking Committee chief is circulating a plan for a less powerful Bureau of Financial Protection.

-- Los Angeles Times, March 2, 2010

Dodd Proposes Financial Protection Committee Housed in Treasury Department

In new attempt to lure the Republican and Democrat votes needed to get semi-sweeping overhaul through Senate, the Banking Committee chief is circulating a plan to create a Financial Protection Committee inside the U.S. Treasury.

-- Los Angeles Times, March 28, 2010

Dodd Proposes Professor of Financial Protection at University of Connecticut

In renewed attempt to lure the Republican and Democrat votes needed to get modest financial fixes through Senate, the Banking Committee chief is circulating a plan to give the University of Connecticut $150,000 to hire a professor to teach the public about financial protection.

-- Los Angeles Times, April 15, 2010

Dodd Proposes Dial 1-900-4Protection Line

In a leisurely attempt to lure the Republican and Democrat votes needed to get itsy-bitsy, not too scary reform bill through Senate, the Banking Committee chief is circulating a plan to set up a 900 number to be answered on weekends by volunteers from credit card customer service departments. Costs of the program will be defrayed by charge of 99 cents per call.

-- Los Angeles Times, May 20, 2010

Dodd Proposes Facebook Financial Protection Page

In further attempt to lure the Republican and Democrat votes needed to get any kind of friggin’ bill through Senate, the soon to retire to the financial industry Banking Committee chief is circulating a plan to create a Facebook page where consumers can share financial protection ideas with each other.

-- Los Angeles Times, June 15, 2010

Dodd Proposes Wall Street Protect Consumers

Fuhghettaboutit.

-- Los Angeles Times, July 4, 2010

Consumer Financial Protection Agency / Harvey Column / Uncategorized - 03/02/2010

Loopholes and Lumps of Coal

While the financial industry got a stocking stuffer, we got stiffed.

House Democrats passed something they called reform and handed  it over to the Senate.

But the bill is laden with loopholes, put there by Blue Dogs and New Democrats doing the bidding of the financial institutions.

Democratic leaders, from President Obama to Rep. Barney Frank have demonstrated that they are at best ineffectual in spearheading efforts to win real reform that puts consumers and taxpayers’ interests first. At worst, they're undermining those efforts.

The resilience shown by the financial industry in blunting efforts at sensible regulation has been nothing short of breathtaking.

Despite these setbacks, the battle may not be lost.

Glass-Steagel / Martin Column / President Barack Obama - 12/15/2009

Rating Wall Street's New Sheriff

By Martin Berg

In the 1930s, the Senate Banking committee appointed a no-nonsense assistant district attorney named Ferdinand Pecora to lead an investigation into the causes of the stock crash of 1929.

Pecora held hearings that were equal parts public spectacle and tough scrutiny of the financial industry’s abuses. His investigation, closely followed by an angry American public, led to a raft of reforms of the banking system, most notably the Glass- Steagal Act, which kept the federally guaranteed business of making loans and taking deposits separate from other, riskier aspects of banking and investing.

Now Congress has appointed a financial inquiry commission to explore our recent financial meltdown.

The panel will not be headed by a hard-nosed prosecutor but by a real estate developer who became Democratic California treasurer from 1999 to 2007 and then an unsuccessful gubernatorial candidate, Phil Angelides.

Uncategorized - 11/18/2009